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Divorce and Financial Settlement: Difference in Income May Support an Adjustment in Favour of the Lesser Earning Party

Divorce and Financial Settlement: Is Financial Need a Requirement for an Adjustment on the Basis of a Difference in Income?

A disparity in the parties respective income and earning capacity is often relied upon as a basis for an adjustment in favour of the lesser earning party. This approach is often met by counter-arguments to the effect that the lesser earning party must demonstrate a financial need in order to receive an adjustment. Whether this argument can defeat a claim that an adjustment should be made on the basis of the parties’ respective income and earning capacities was examined by the Full Court in Waters v Jurek (1995) 20 Fam LR 190.

The parties in Walters had been married for 22 years and had one child who had reached adulthood at the time of the trial. Both parties were employed as psychiatrists, with the husband earning $171,000 and the wife $74,000. The trial judge found that the wife was capable of earning more as her career progressed.

The trial judge made orders that the wife receive a $50,000 adjustment under s 75(2)(b) of the Family Law Act. The husband appealed against this determination on the basis that the wife failed to demonstrate a financial need. Both parties, the husband submitted, were were high income earners and capable of supporting themselves.

Divorce and Financial Settlement: Financial Need Is Not a Pre-Condition for an Adjustment

The main issue with respect to the husband’s argument was whether an adjustment under s 75(2)(b) required the wife to demonstrate a financial need. The Full Court determined that it did not.

The trial judge, the Full Court held, was entitled to take account of any disparity in the parties’ respective earning capacities:

  • “Shortly stated, if a trial Judge comes to a conclusion that there is an imbalance in the income or respective earning capacity of each of the parties, an adjustment can be made in favour of one of the parties.”

One of the justifications for this approach is that property orders must be just and equitable; and in cases like Walters, this may require an adjustment in favour of the lesser earning party. Accordingly, given the disparity in the parties’ incomes, it was well within the trial judge’s discretion to have adjusted the ultimate division of assets.

Divorce and Financial Settlement: Concluding Remarks

One unfortunate consequence of lawyers and judges describing s 75(2) considerations as “needs factors” is that it gives the misleading impression that financial need is a pre-condition to enlivening s 75(2)(b). Walters demonstrates that this is not the case. A just and equitable outcome may very well require an adjustment, even when the party receiving the benefit of the adjustment is unable to demonstrate a financial need.

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